In what sense is the US richer?
Average gross domestic product (GDP) in the US is about 40% higher than average GDP of the EU-15 when measured at purchasing power parity (PPP). The gap is slightly greater if we consider either the twelve Eurozone members (EU-12) or add the accession states (EU-25). Although GDP is a poor indicator of measure of welfare or happiness, let’s agree to use it for the sake of comparison.
The main reason the US is richer is, first of all, because a higher proportion of Americans are in employment and, secondly, they work about 20% more hours per year than Europeans.
When we adjust for both these factors and look at GDP in 2005 per person per hour worked, there is virtually no difference between Germany, France and the US.
Economists often speak of this as revealing different American and European social preferences for work and leisure. In truth, both the employment rate and how long the average person works are explained mainly by political history. Until the late 1970s total hours worked were falling both in Europe and in the USA; since then, total hours worked have continued to fall in the EU-15 but have risen again in the US. Equally, if we look at employment data by age group, Americans join the work force earlier and leave it far later than Europeans. The key to understanding why this has happened is the change in US income distribution over the past 30 years. Since 1979, the bottom 40% of income earners in the US has been treading water, while the bottom 20% has become poorer. US workers have needed to put in more years and longer hours simply to maintain their real income position.
Who has Faster Growth?
Does the US grow faster than the EU? Again, the answer depends on what we measure.
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